Treasury Releases New Proposed Required Minimum Distribution Regulations

The I.R.C. contains rules governing various arrangements that offer the opportunity to save for retirement on a tax-deferred basis. These arrangements include qualified plans described in §401(a), individual retirement arrangements under §408, tax deferred annuities under §403(b), and eligible deferred compensation plans under §457(b). But the deferrals aren’t meant to be for an indefinite period. At some point, the money has to come out of the retirement plans and become subject to income tax. The required minimum distribution (RMD) rules under §401(a)(9) govern when distributions from a retirement plan must begin and end.

From 1984 through 2020, key elements of §401(a)(9) were largely unchanged. Retirement plan participants were generally required to start receiving annual RMDs no later than the April 1 following the later attainment of age 70 1⁄2 or termination from employment with the plan sponsor. Five percent or more owners of the plan sponsor were required to commence distributions as of the April 1 following the attainment of age 70 1⁄2 regardless of whether they have terminated employment with the plan sponsor. The date benefits are required to commence is known as the required beginning date (RBD). If a participant worked for the plan sponsor beyond his RBD, the plan is required to actuarially adjust the participant’s benefits to reflect the shorter payout period.

Plan distributions were (and still are) generally required to be completed by the end of the lives of the participant and the designated beneficiary (or the life expectancy of the participant and the designated beneficiary). If the participant dies prior to receiving a complete distribution of a retirement plan account balance, the distribution are currently as follows …